I have written about this before but feel the need to emphasise it again because I just do not understand the folly.
The new Labour Government as all governments realise the only way a country becomes richer is to grow the economy in real terms (not inflationary terms) so there is more real cake to divide between the population and pay for public services. How you divide up the cake is a matter of politics to an extent. However two things are critical. One - people are rewarded properly for working and two - as businesses are the engines for growth they must be motivated to invest, compete and succeed as the bedrock of any economy.
The most fundamental factor is businesses must be profitable. Why ? 1) To reward the entrepreneurs and investors for starting and running the businesses (otherwise why would they take the risk - take the stress - take the responsibility.) 2) to fund the workforce 3) to provide the seed corn for research and development - investment in the business - expansion/efficiency - to engender real growth.
So what did Reeves do in her first budget ? She landed businesses with one big cost increase in the form of a minimum wage increase of 6.7% and one massive one in the form of increased employer NIC contributions of about 60% per employee (on minimum wage) in effect adding about 9% to the wage bill. So in one foul swoop business employment related costs have gone up nearly 16%.
Where will this money come from ?
1) it could be paid for out of profits if they exist - but in reality in order to compete most businesses do not have a lot of meat on their bones. However even if they have - taking a massive chunk of profits will detract from future business investment and reduce the capacity to reward its employees.
2) just about all businesses will attempt to put up their prices to cover these massive cost increases - which is why inflation is surging in today's figures.
3) just about all businesses will look to try to find ways of reducing employment costs by cutting back on or employing less staff if possible.
4) if the costs increases cannot be covered by 1) to 3) above or most likely a combination of them then the business is likely to fold.
Looking at this in the round - this is what is happening in the real world. 1) Minimum wage increases are forcing up prices so in effect no one is better off. It is just a political stunt. The NIC increase is highly inflationary. 2) many businesses are not be able to pass on employment cost increases so there will be a combination of cutbacks in employment opportunities and or business failures.
So in summary Reeve's growth ambitions are being torpedoed by her own badly judged NIC increases + an above inflation minimum wage increase. The trend is towards recession, increased unemployment, business closures and higher benefit claims.
A completely ridiculous amateurish folly.
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